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Africa Market and Lombard Fund News

Monthly Report-June 2018

09 Jul 2018

Dear Investors

Risk off and global stress filter through into Africa.

South Africa

  1. been a bit of rough sailing this past month, The rand plunged by 9% against the dollar, driven by global risk-off sentiment and poor domestic economic data. However, policymakers have openly stated that they would not act on currency moves until they see a lasting effect on domestic inflation. While the monetary authorities have cautioned for a interest rate hike, the market is not yet pricing one in. This optimism is fuelled by South Africa’s consumer price inflation of 4.4% , which is at the bottom of the acceptable inflation target band. Hence, we may have to wait for inflation to breach the target for a sustainable period before we see any reaction from the central bank. In parallel, Moody’s latest report outlines risk to South Africa’s growth coming from the proposed land and mining reforms. Although the agency expects 1.6% GDP growth in 2018, it states that persistent weak business confidence remains a threat to growth.

As a result the fund has now completely exited positions in Sasol, fuel price increases have become an area of concern for the poor and there is now pressure on government to intervene to reduce prices. The possibility of a direct taxation on Sasol or petrol price fix is remote, the fund decided to lock in the substantial return from the investment and rather wait to see how the current unrest plays out. Our decision to exit Old Mutual was correct. Following the exit, we saw the discount rise as the share price fell. The fund thus reinstated the holding in the company at a much greater discount.



The Egyptian central bank reported that the country’s current deficit contracted $5.3 bn in the first nine months of the 2017/18 fiscal year. This is mainly the result of tourism revenues improvement. We remain very optimistic about the Egyptian economy and investments.


Kenya is looking to implement a 35% corporate tax for companies on annual income of more than KES 500mn. The draft still needs to be approved by parliament, but should it be approved, this would represent the highest corporate tax rate in the region. This is a very concerning intervention, however our analysis indicates that the final outcome of this suggestion will not be as aggressive as it is being proposed. We continue to review our investments in Kenya and (for now) are not making any additional investments.


Nigeria plans to raise $2.8 bn of debt offshore as part of its 2018 budget. President Buhari signed a record 9.12 trillion naira budget into law to promote growth in the country.

The Nigerian Stock Exchange (NGSE) announced that it has modified its Equities Market Structure, which shall become effective on Monday, July 2, 2018. The new Market Structure will create a level playing field for all market participants and as a result investor can deploy broader trading strategies, enjoy best execution and benefit from enhanced market depth. All these factors enhance market efficiency and will drive up equity valuations as liquidity risk to investors falls.


Looking forward to our next communication


Constant Capital

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